Bernie Sanders says “billionaires should not exist,” and fewer will exist if the wealth tax proposal the liberal Senator and presidential candidate unveiled Sept. 24 were ever to come to fruition.
Yes, the “super-rich” may become merely the “pretty rich” if Sanders (I-VT) and fellow liberal presidential candidate Sen. Elizabeth Warren (D-MA) get their way.
While the U.S. has never had a “wealth tax,” the two candidates, who along with Joe Biden are of course the leading contenders for the Democratic presidential nomination, see implementing one as a way to combat the issue of wealth inequality in America while generating huge tax revenues for the federal government.
Meanwhile, frontrunner Biden, as an alternative to his own wealth tax, is rumored to be considering proposing a new tax on Wall Street which would target financial transactions such as the sale of stocks and bonds, per a Sept. 26 article in The Washington Post. Such a proposal would likely generate only a fraction of the revenues compared to the Warren and Sanders wealth tax proposals.
The mere prospect of a wealth tax has naturally alarmed the business world as well as conservatives and more-centrist Democrats. If either proposal were to become real, it would certainly face legal challenges as being unconstitutional and could be struck down by the courts.
The world’s two leading academic advocates of wealth taxation, University of California-Berkeley economists Emmanuel Saez and Gabriel Zucman, who have worked with both Sanders and Warren on their proposals, published an analysis of them on Sept. 22. It found that the Warren wealth tax would raise $200 billion (in 2019) while the Sanders wealth tax would raise $335 billion (in 2019), or $135 billion (68%) more than the Warren wealth tax.
Dueling wealth taxes
Warren’s “Ultra-Millionaire Tax” calls for a 2% annual tax on households with a net worth between $50 million and $1 billion and a 3% annual tax on households with a net worth over $1 billion.
She uses the following example to help make her case for a wealth tax:
“Consider two people: an heir with $500 million in yachts, jewelry, and fine art, and a teacher with no savings in the bank. If both the heir and the teacher bring home $50,000 in labor income next year, they would pay the same amount in federal taxes, despite their vastly different circumstances. Increasing income taxes won’t address this problem. That’s why we need a tax on wealth.”
Warren’s campaign says the Ultra-Millionaire Tax would apply only to roughly the wealthiest 75,000 households, or the top 0.1%. “Because wealth is so concentrated, Saez and Zucman project that this small tax on roughly 75,000 households will bring in $2.75 trillion in revenue over a ten-year period.”
Still, for those families, just figuring out how much they owe will be difficult, likened to having to file an “annual estate tax return.”
Sanders’ more aggressive wealth tax proposal claims (per Saez and Zucman’s analysis) “the wealth of billionaires would be cut in half over 15 years” relative to a situation with no wealth tax, and is much more punitive to the “richest of the rich” than Warren’s tax.
“We are going to take on the billionaire class, substantially reduce wealth inequality in America and stop our democracy from turning into a corrupt oligarchy,” Sanders said of his plan in a statement.
His tax reaches more households (estimated at 180,000) than Warren’s and takes a larger bite out of their assets, according to analysis by Saez and Zucman.
“We estimate that Sanders’ wealth tax would raise $4.35 trillion over a decade and fully eliminate the gap between wealth growth for billionaires and wealth growth for the middle class,” Saez and Zucman say.
Under the Sanders proposal, the tax rate would start at 1% of net worth from $32 to $50 million, increase to 2% on net worth from $50 to $250 million, 3% from $250 to $500 million, 4% from $500 million to $1 billion, 5% from $1 to $2.5 billion, 6% from $2.5 to $5 billion, 7% from $5 to $10 billion, and 8% on wealth over $10 billion (the brackets apply for married taxpayers and are halved for singles).
Average it out, and America’s billionaires would initially be paying about a 6% average tax rate, Saez and Zucman conclude. The economists previously found that a wealth tax rate on U.S. billionaires of 6.25% would maximize revenue generation for the government.
By the numbers
Here are a few more interesting statistics about income inequality and wealth tax proposals, taken largely from Saez and Zucman’s findings:
- Using a new model of wealth taxation of billionaires to illustrate the long-run effects of wealth taxation on top fortunes, a moderate wealth tax in place since 1982, with a 3% marginal tax rate above $1 billion, would have reduced the total share of wealth owned in 2018 by the 400 richest Americans from about 3.5% to about 2%. A more radical wealth tax, with a 10% marginal tax rate above $1 billion, would have reduced this share further to about 1%.
- “We estimate that if the Sanders wealth tax had been in place since 1982, the wealth owned by the Forbes 400 richest Americans would be only 40% of what it is today: Instead of having a wealth of $7.2 billion on average (in 2018), they would have a wealth of $3.0 billion on average. The share of wealth owned by the Forbes 400 would not have exploded and would only be slightly higher than it was in the early 1980s. The current top 15 wealthiest Americans would own $196 billion (instead of the $943 billion they own in 2018).”
- In 2018, Bill Gates was worth roughly $97 billion. If Warren’s tax had been in place since 1982, he would have been worth $36.4 billion. Under the Sanders tax, however, Gates’ net worth would be a comparatively tiny $9.9 billion.
- Based on the net worth of each individual as reported by the Bloomberg Billionaires Index, Amazon’s Jeff Bezos would pay about $9 billion in taxes this year under Sanders’ proposed wealth tax. Microsoft’s Bill Gates would pay about $8.6 billion, Berkshire Hathaway’s Warren Buffett $6.6 billion, and Facebook’s Mark Zuckerberg $5.8 billion.
- Under the Sanders wealth tax plan, the average wealth tax rate on billionaires would be around 6% per year initially and fall slowly over time as the wealth of billionaires and especially decabillionaires is eroded.Therefore, the Sanders wealth tax plan would entirely close the gap in wealth growth between billionaires and the average American family.
- One-fifth (20%) of American wealth is controlled by the top 0.1% of taxpayers, which translates to about 170,000 families in a country of 330 million people.
- On June 24, 18 U.S. billionaires (among 607 in the U.S.) including George Soros and Abigail Disney posted a letter to 2020 presidential candidates calling for “a moderate wealth tax on the fortunes of the richest one-tenth of the richest 1% of Americans—on us.” The “straightforward” proposal would put in place “a tax of 2 cents on the dollar on assets after a $50 million exemption and an additional tax of 1 cent on the dollar on assets over $1 billion. If you have $49.9 million or less you are not paying the tax. It is estimated to generate nearly $3 trillion in tax revenue over ten years.”
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